Tuesday 12th February 2019

OPENING CALL: The Australian market looks to open higher with SPI Futures up 24 points.

Chinese stocks were expected to be the focal point after the country’s markets were dark last week for the Lunar New Year holiday. They didn’t disappoint as small caps repeated the big gains seen on Feb. 1, the last day of trading before today, climbing upwards of 4%.
The S&P 500 struggled to find direction as trade tensions simmered ahead of another round of negotiations between U.S. and Chinese officials.

Overnight Summary

Market Quotes by TradingView

Each Market In Focus

Australian Market

Financials returned to being a pressure point for Australian stocks after the sector had its best week since December 2011, a relief rally which followed the Royal Commission’s review of the industry. The S&P/ASX 200 dropped 0.2% to 6060.8 amid a lack of broad direction for Asia Pacific equities today. Financials dropped 1.2% and health care fell similarly. But materials jumped 1.5% as Chinese iron-ore futures have surged in post-holiday trading.

US Markets

The S&P 500 struggled to find direction as trade tensions simmered ahead of another round of negotiations between U.S. and Chinese officials. With more than half of the companies in the broad index having reported fourth-quarter results, investors have turned their attention toward the continuing trade spat between the world’s two largest economies. U.S. Trade Representative Robert Lighthizer a Treasury Secretary Steven Mnuchin are scheduled to meet China’s vice premier later in the week in Beijing. Investors worry the talks could spark fresh volatility for financial markets, leading some to avoid making any major moves ahead of the negotiations. Stocks rose in January on fresh hopes that the U.S. and China would be able to carve out a trade deal, but some of that optimism appeared to lose steam last week as investors parsed a stream of downbeat economic data. Although economic growth in the U.S. still looks relatively steady, Mr. Golub cautioned that an unexpected breakdown in trade talks remains a major market risk. “I’m actually quite optimistic about the broad backdrop but that doesn’t mean that there’s no risk,” he said. For now, investors appeared to be awaiting any insight into how negotiations will proceed, leaving major U.S. indexes stuck roughly where they were Friday-a situation that could quickly change depending on how trade talks play out, added Mark Haefele, chief investment officer of UBS Global Wealth Management. The S&P 500 fell less than 0.1% in recent trading, the latest in a series of small moves above and below the flatline Monday. The Dow Jones Industrial Average shed 68 points, or 0.3%, to 25036, while the Nasdaq Composite rose less than 0.1%. Communication stocks were the biggest drag on the broad index, with the sector falling 0.6%. Videogame company Activision Blizzard fell 6.8%, while Take-Two Interactive Software shed 3.7%, extending their losses so far this month into the double digits on a percentage basis. Industrial stocks, meanwhile, were among the best-performing stocks in the broad index Monday. Aluminum-parts manufacturer Arconic and railroad company Norfolk Southern both rose more than 3%, triggering more modest gains throughout the S&P 500’s industrial sector Norfolk Southern added 3.9% to lead the sector higher after it unveiled a strategic plan focused on increased productivity and revenue growth, as well as achieving a dividend payout ratio of 33%. Arconic rose 3.1% after the company said Friday that it would spin off either its aluminum-sheet rolling or aerospace-components unit. Energy stocks in the S&P 500 also rose, giving the index additional support.


Gold prices fell, hurt by renewed strength in the dollar and a rise in Treasury yields. Gold for April delivery, the most-active futures contract, fell 0.5% to $1,311.90 a troy ounce on the Comex division of the New York Mercantile Exchange, dropping for the sixth time in seven sessions. Prices had hit their highest level since May earlier in the year after the dollar softened and stocks were volatile, but a rebound in the U.S. currency and calmer markets have sent the metal falling in recent sessions. Analysts are monitoring economic data and trade negotiations this week, as renewed faith in the U.S. economy has boosted stocks, Treasury yields and the dollar while hurting gold. Elsewhere in precious metals, most-active silver futures fell 0.8% to $15.690 a troy ounce. Platinum dropped 2% to $786.60, while palladium shed 1.1% to $1,356.80. Among base metals, most-active copper futures for March delivery closed down 0.7% at $2.79 a pound as analysts awaited the latest round of trade negotiations. Fears about slowing global growth and commodities demand amid the continuing U.S.-China tariff fight have hurt industrial metals in recent months. On the London Metal Exchange, aluminum for delivery in three months dropped less than 0.1% to $1,880 a metric ton. Zinc shed 2.2% to $2,644, tin fell 0.1% to $21,025, nickel ended down 0.6% at $12,490 and lead slipped 1.7% to $2,045.50.

Iron Ore: 87.69 – 3.30 (March Contract)

Oil Futures

Oil prices fell to a two-week low due to a stronger dollar and simmering concerns that unresolved U.S.-China trade negotiations could hurt the global economy and reduce oil demand. West Texas Intermediate futures, the U.S. oil standard, ended 0.6% lower at $52.41 a barrel on the New York Mercantile Exchange, the lowest since Jan. 28. Brent crude, the global oil benchmark, ended down 1% at $61.51 a barrel on London’s Intercontinental Exchange, the lowest since Jan. 29. Oil prices fell nearly 5% last week, and a key culprit was a surging dollar due to a very strong U.S. jobs report Feb. 1. Oil, like many commodities, is bought and sold in the U.S. currency, so oil prices often move in the opposite direction of the dollar. Oil also continued to be pressured lower due to worries that negotiations for a U.S.-China trade deal may not happen as quickly as initially expected. “Trade talks are the main issue for oil,” said Phil Flynn at Price Futures in Chicago, noting that oil prices fell last week when White House economic adviser Larry Kudlow told Fox Business the U.S. and China are still miles apart on a trade deal. “While that comment may be just a negotiating tactic, the market took it seriously and went on to post its worst week of the new year.” Mr. Flynn said. Oil prices are “still trying to figure out what lead to follow. On the one hand, there is the OPEC+ cut story, now coupled with increasing issues around Venezuelan supply, and a global equity market that is still pretty close to the rebound highs set over the last two weeks,” analysts at consulting firm JBC Energy wrote in a note Monday. “At the same time,” they added, “it has to be argued that a lot of the economic data that has been released over the last few days has really not been too encouraging, and U.S.-Chinese trade talks are also seemingly not progressing very fast.”


The U.S. dollar added to its recent winning streak, strengthening against rivals across
the board, despite the chance of the renewed partial government shutdown looming in the
background. The ICE U.S. Dollar Index rose 0.5% at 97.084, a level not seen since December, extending a strong updraft last week that helped the gauge to mark its best weekly percentage jump, up 1.1%, since August. Among major currency pairs, the greenback was strongest against the Japanese yen , climbing 0.6% to Yen110.41, its best level since late December. Japanese markets were closed for the National Foundation Day holiday on Monday. This limited liquidity during Asian market hours and hurt the Swiss franc, which fell prey to a mini ‘flash-crash’. The franc since recovered some, while the greenback remained stronger. One dollar last bought 1.0042 francs, compared with 0.9986 francs late Friday in New York. The dollar’s main rival, the euro was slightly weaker at $1.1273, down from $1.1326 late Friday. The British pound was also notably weaker against its U.S. rival, after many economic data further highlighted weakness in the U.K. economy. Gross domestic product for the final quarter of 2018 fell to 1.3% year-over-year, undercutting expectations. Quarter-on-quarter, GDP growth slowed to 0.2%, also lower than expected. Business investments were down in the fourth quarter, and construction output and industrial production fell in December. The only data points that outperformed expectations were preliminary fourth-quarter reads of imports and exports. The pound fell to $1.2859, down from $1.2942 late Friday in New York.

European Markets

The Stoxx Europe 600 rose 0.85%, or 3.05 points to 361.12 as dealers shrug off a lackluster start to the week’s trading in New York. Germany’s DAX and France’s CAC-40 both gained about 1%. “A slow start to the U.S. session threatens to undermine the gains seen in Europe, but with trade concerns now front and center once again, it’s not surprising to see Wall Street struggling to build up a decent head of steam,” said IG’s Chris Beauchamp. Italian banks advanced after reducing bad loans by 30% year-on-year in the fourth quarter, according to Citigroup. Banco BPM was the top pan-European riser, gaining 7%.

Asian Markets

Chinese stocks were expected to be the focal point after the country’s markets were
dark last week for the Lunar New Year holiday. They didn’t disappoint as small caps
repeated the big gains seen on Feb. 1, the last day of trading before today, climbing
upwards of 4%. Larger-stock indexes on the mainland rose more than 1% while benchmarks in Hong Kong and Taiwan (which hadn’t seen trading since Jan. 30) were up more than 0.5%. But Southeast Asia has been a soft spot throughout today’s action, which broadly lacked a clear direction or trading catalyst. And India’s Sensex is off 0.5%. Action has been listless for U.S. futures, with those for the S&P 500 essentially flat. The Shanghai Composite jumped 1.4% to a two-month high, while Japan’s Nikkei Stock Average was shut for a holiday and Hong Kong’s Hang Seng rose 0.6%.

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